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Walt Disney’s (DIS) Q2 FY2025 results revealed a pleasant surprise last week. The entertainment conglomerate’s stock jumped 10% after it announced that its Disney+ subscriber count jumped 1.1% to 126 million, beating estimates of around 123.3 million.
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Meanwhile, despite macroeconomic pressures, Disney’s entertainment segment saw revenues climb 9%, thanks to a strong domestic performance. The sparkling quarter comes just a couple of years after its CEO, Bob Iger, oversaw a strategic restructuring that organized the company into “three core, collaborative business segments.”
The combination of better-than-anticipated subscriber growth in Disney’s direct-to-consumer streaming segment and resilient performance in its Experiences division signals a turnaround for Disney, which makes me bullish on the stock despite ominous macroeconomic headwinds.
Disney+ Subscriber Growth Fuels 10% Stock Rally
More so than anything else, Disney’s quarterly results are thanks to its streaming segment. Recall that the company previously anticipated a potential decline in Disney+ subscribers during the quarter. Disney+ and Hulu, combined, ended the quarter with a combined total of 180.7 million subscribers. This surprising growth wasn’t easy going amid competition from the likes of Netflix (NFLX) and Amazon (AMZN), among others.
The company recently integrated its Hulu content with the Disney+ experience and added sports content. This led to increased engagement and significantly reduced “churn,” a term that describes consumers dumping a service after a short while. Disney has had theatrical successes with Moana 2 and Mufasa: The Lion King. These films can cause a “multiplier effect” because they drive both theater and Disney+ revenue.
Meanwhile, Disney series like Paradise and The Fall of Ruby Franke, are popular among streamers, too. So, Disney’s focus on strategic pricing and Hulu integration seems to be paying off. Disney’s stock has always been sensitive to Disney+ numbers because it is a critical segment for its business. Streaming generates high-margin and recurring revenue, not to mention free advertising.
Domestic Parks Growth Offsets China’s Weakness
Disney also saw momentum in its domestic Experiences segment, including theme parks, resorts, cruise lines, and consumer products. This was also a surprise, given that consumer confidence is at its lowest level since the COVID-19 pandemic. While Domestic Parks & Experiences grew 13% year-over-year, things were not as rosy overseas. International park revenue dipped 5%, with a significant 23% decline in operating income. The company attributed this to “softness” in China.